Google News Alerts Email Beta
Firstly, why not eventually do it for web search results? Or Google Groups postings? One of the earliest bits of outward looking Perl scripting I did was to scrape the search results for a Google Groups search for 'BBCi Search' and 'BBC search engine' to pick out the community reaction once we launched. If Google took that process in-house they could save money on the bandwidth expended by software like Web Position Gold or hacks like me pinging them for periodical updates, and additionally earn revenue from advertising within the alert emails. Of course you are still going to get people who want to get the result set and then ping all the urls to obtain backlinks and source code for analysis purposes, but I think Google have a viable business model along the lines of the press-snippets services like Lexisnexus based on their web index.
Secondly, how do news sources feel about having their content used in this way? BBC News Online don't have to sell advertising space, can happily put out news feeds in RSS format, and can view being linked to by a Google News alert as a way of increasing their reach. But for someone attempting to make a paid-for-content model work it isn't so simple. How do you sell advertising based on delivering news & email, when Google is delivering your stories for free?
But the big question about news.google.com I haven't seen answered yet is whether an algorithim based on rapid spidering and text analysis of sources can really do news journalism on the cheap...